Foundation for New Era Philanthropy
Encyclopedia
The Foundation for New Era Philanthropy was a notorious Ponzi scheme
that operated from 1989 until its collapse in 1995 after having raised over $500 million from 1100 donors and embezzled
$135 million of this. Most of the money was stolen from Christian
religious organizations and charities in the Philadelphia, Pennsylvania
area. The scheme was publicly discovered by an accounting teacher at a college in Michigan and by the auditing firm Coopers & Lybrand working with its client, a local religious college in Los Angeles who suffered no loss in its participation.
In 1989, Bennett invited several friends to become "beneficiary donors" in a new organization he was founding. They were told that if they contributed at least $5000 for three months, he would double it. He explained that he had identified secret donors who would match charitable contributions raised by his friends. So rather than donating $5000 to charity, a sponsor gave the money to New Era Philanthropy for three months, then he or she could donate $10,000.
His friends obliged by giving him various amounts, which Bennett used to pay his bills. He was able to pay them their doubled funds in January 1990 by tapping a payment made to a consulting business he ran on the side. This was the last "real" income paid to investor
s. To have funds ready to pay off the climbing number of deposits, he increased the minimum "contribution" to $25,000 and lengthened the minimum waiting period. Different donors were told different things; over time the waiting period grew from six to nine to ten months. The number of anonymous donors, anonymous benefactors, and anonymous philanthropists also varied, though Bennett eventually settled on claiming to have nine of them.
John M. Templeton, Jr., son of John Templeton, Sr., the famous investor and philanthropist, was a friend of Bennett, and people believed that he was one of the anonymous donors. In addition, Prudential
Securities was a prominent part of the setup (and became the subject of a $90 million lawsuit accusing them of complicity).
In 1994, Bennett expanded the program to allow "donations" by nonprofit organization
s.
The program remained small until 1993, when the Philadelphia Academy of Natural Sciences asked for a quarter-million dollar match. After successfully completing that match, many major organizations such as the Philadelphia Public Library and the University of Pennsylvania
joined, along with church
es and other Christian organizations. Like most modern pyramid
or Ponzi schemes, Bennett's was an 'affinity' scheme, in which he defrauded people of common interest: in this case, local nonprofit organizations and Christian charities. Using the swelling funds from these churches, Bennett expanded further, establishing offices in Radnor, Pennsylvania
. He had glossy brochures and a staff to process all the money coming in.
He expanded his sales force by encouraging organizations to take a "finder's fee" from any money they raised. In other words, if a representative could convince donors to give $10,000,000, the agent could keep $1,000,000 for himself, give the remaining $9,000,000 to New Era and get back $18,000,000 for the nonprofit in six months.
By and large his donors did not ask many questions. When they wanted proof that the money they donated was not being stolen, he provided evidence that the Foundation owned government bond
s. However, he was showing the same bonds to everybody, and they had been pledged as collateral
on loans anyway. He also had prospective participants speak with supposed representatives of Prudential Bache Securities. One of the conditions of the participation was that various tranches had to be committed to. One of the schemes was to space out the participation over the course of one year in three tranches with one being repaid and two tranches always held by New Era. One of the tip offs of the fraud were the tax returns filed by the Trust, which were publicly available. The accounting for the numerous funds held by New Era were not evident in the financial statements. New Era used a small one-man CPA firm which had erroneous financial opinions on the financial statements which Coopers & Lybrand investigated. This was one of several red flags noted.
Bennett told prospects that his anonymous donors met several times a year, in person or by phone. Former U.S. Treasury Secretary William Simon
, who ironically lost a lot of money to the scam, asked to be admitted to the donor panel. Bennett never responded to the request and Simon gave him money anyway.
With the cash flowing though his hands, Bennett made all sorts of private investments. He bought a share of a travel agency and ran all of New Era's travel business through it. He also purchased a publishing house and other businesses.
In early 1995, The Foundation for New Era Philanthropy was receiving praise in the press for giving money to religious organizations and involving high school students in charitable events. However, the end came swiftly.
On May 15, 1995, a skeptical article about the Foundation appeared on the front page of the Wall Street Journal. The same day, the Foundation capitulated in the face of a lawsuit demanding repayment of a $44,000,000 loan and filed for chapter 11 bankruptcy protection. In filing, the foundation stated that its assets were worth $80 million with liabilities of $551 million.
A close examination of the documents filed in the subsequent lawsuits reveals that more than $354 million passed through New Era's hands and that Bennett took $8 million of that for himself.
In the end, by liquidating all of Bennett's personal assets and reclaiming funds that had been paid to earlier participants, the court was able to bring the total loss down to $135,000,000, spread among all participants in the scheme. In other words, participants who got out early and suffered no losses were required to give the money back, to be shared with others who were less careful (or less lucky).
Bennett faced 82 federal counts of money laundering
and wire
, mail and bank fraud
. He planned to claim in his defense that he had been possessed by "religious fervor", but the judge did not allow this. In the end Bennett pleaded no contest
to all the charges in March 1997. Though federal sentencing guidelines indicated a sentence of 22 to 27 years, the judge gave him 12.
The scandal touched 1,100 individuals and charities, including more than 180 evangelical groups, colleges, and seminaries. A partial list appears below.
attorney general
's office. She had received a letter in 1993 from a suspicious whistleblower within New Era. Her inquiry eventually resulted in New Era's registry with the IRS.
As Bennett started to disclose greater financial details, New Era caught the wary eye of Albert Meyer, a Spring Arbor College accounting professor, whose institution in Michigan had been drawn into the matching scheme. Meyer's research indicated that the Foundation was a scam, but Spring Arbor College successfully collected on its early investment. College officials told Meyer that he was going to endanger their ability to get matching grants if he kept asking so many questions. They went so far as to wave a check from New Era in Meyer's face before investing more money. Meyer however was sure he was right and alerted federal investigators and The Wall Street Journal that New Era had all the features of a pyramid scam. After New Era collapsed, the president of Spring Arbor College called Meyer to apologize. "You were right all along. We should have listened to you," he admitted.
According to the PA Attorney General's complaint, prominent victimized charities (listed without dollar amounts) included the Boy Scouts of America, the Environmental Defense Fund, Haverford College, Harvard University
, Princeton University
, The Nature Conservancy
, One to One Partnership Inc., Planned Parenthood, the Philadelphia Orchestra, Stanford University Medical School, the United Way and Yale Law School. Some of the organizations with known involvement amounts included (in alphabetical order):
Donors
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
that operated from 1989 until its collapse in 1995 after having raised over $500 million from 1100 donors and embezzled
Embezzlement
Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted....
$135 million of this. Most of the money was stolen from Christian
Christian
A Christian is a person who adheres to Christianity, an Abrahamic, monotheistic religion based on the life and teachings of Jesus of Nazareth as recorded in the Canonical gospels and the letters of the New Testament...
religious organizations and charities in the Philadelphia, Pennsylvania
Philadelphia, Pennsylvania
Philadelphia is the largest city in the Commonwealth of Pennsylvania and the county seat of Philadelphia County, with which it is coterminous. The city is located in the Northeastern United States along the Delaware and Schuylkill rivers. It is the fifth-most-populous city in the United States,...
area. The scheme was publicly discovered by an accounting teacher at a college in Michigan and by the auditing firm Coopers & Lybrand working with its client, a local religious college in Los Angeles who suffered no loss in its participation.
Origin
The Foundation was founded by John G. Bennett Jr., a Philadelphia-area Christian businessman who had previously run a variety of different entities, including some Pennsylvania state drug education centers and a corporate training business.In 1989, Bennett invited several friends to become "beneficiary donors" in a new organization he was founding. They were told that if they contributed at least $5000 for three months, he would double it. He explained that he had identified secret donors who would match charitable contributions raised by his friends. So rather than donating $5000 to charity, a sponsor gave the money to New Era Philanthropy for three months, then he or she could donate $10,000.
His friends obliged by giving him various amounts, which Bennett used to pay his bills. He was able to pay them their doubled funds in January 1990 by tapping a payment made to a consulting business he ran on the side. This was the last "real" income paid to investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s. To have funds ready to pay off the climbing number of deposits, he increased the minimum "contribution" to $25,000 and lengthened the minimum waiting period. Different donors were told different things; over time the waiting period grew from six to nine to ten months. The number of anonymous donors, anonymous benefactors, and anonymous philanthropists also varied, though Bennett eventually settled on claiming to have nine of them.
John M. Templeton, Jr., son of John Templeton, Sr., the famous investor and philanthropist, was a friend of Bennett, and people believed that he was one of the anonymous donors. In addition, Prudential
Prudential Financial
The Prudential Insurance Company of America , also known as Prudential Financial, Inc., is a Fortune Global 500 and Fortune 500 company whose subsidiaries provide insurance, investment management, and other financial products and services to both retail and institutional customers throughout the...
Securities was a prominent part of the setup (and became the subject of a $90 million lawsuit accusing them of complicity).
In 1994, Bennett expanded the program to allow "donations" by nonprofit organization
Nonprofit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
s.
The program remained small until 1993, when the Philadelphia Academy of Natural Sciences asked for a quarter-million dollar match. After successfully completing that match, many major organizations such as the Philadelphia Public Library and the University of Pennsylvania
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
joined, along with church
Christian Church
The Christian Church is the assembly or association of followers of Jesus Christ. The Greek term ἐκκλησία that in its appearances in the New Testament is usually translated as "church" basically means "assembly"...
es and other Christian organizations. Like most modern pyramid
Pyramid scheme
A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public...
or Ponzi schemes, Bennett's was an 'affinity' scheme, in which he defrauded people of common interest: in this case, local nonprofit organizations and Christian charities. Using the swelling funds from these churches, Bennett expanded further, establishing offices in Radnor, Pennsylvania
Radnor, Pennsylvania
Radnor is a wealthy Main Line township. It is an unincorporated community in Radnor Township of Delaware County and Tredyffrin Township of Chester County in the U.S. state of Pennsylvania. It lies near the communities of Villanova and St...
. He had glossy brochures and a staff to process all the money coming in.
He expanded his sales force by encouraging organizations to take a "finder's fee" from any money they raised. In other words, if a representative could convince donors to give $10,000,000, the agent could keep $1,000,000 for himself, give the remaining $9,000,000 to New Era and get back $18,000,000 for the nonprofit in six months.
By and large his donors did not ask many questions. When they wanted proof that the money they donated was not being stolen, he provided evidence that the Foundation owned government bond
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...
s. However, he was showing the same bonds to everybody, and they had been pledged as collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
on loans anyway. He also had prospective participants speak with supposed representatives of Prudential Bache Securities. One of the conditions of the participation was that various tranches had to be committed to. One of the schemes was to space out the participation over the course of one year in three tranches with one being repaid and two tranches always held by New Era. One of the tip offs of the fraud were the tax returns filed by the Trust, which were publicly available. The accounting for the numerous funds held by New Era were not evident in the financial statements. New Era used a small one-man CPA firm which had erroneous financial opinions on the financial statements which Coopers & Lybrand investigated. This was one of several red flags noted.
Bennett told prospects that his anonymous donors met several times a year, in person or by phone. Former U.S. Treasury Secretary William Simon
William Simon
William Simon or Bill Simon may refer to:* William E. Simon, former Secretary of Treasury of the United States* William H. Simon, Columbia Law School professor* William S. Simon, president and CEO of Walmart U.S....
, who ironically lost a lot of money to the scam, asked to be admitted to the donor panel. Bennett never responded to the request and Simon gave him money anyway.
With the cash flowing though his hands, Bennett made all sorts of private investments. He bought a share of a travel agency and ran all of New Era's travel business through it. He also purchased a publishing house and other businesses.
In early 1995, The Foundation for New Era Philanthropy was receiving praise in the press for giving money to religious organizations and involving high school students in charitable events. However, the end came swiftly.
On May 15, 1995, a skeptical article about the Foundation appeared on the front page of the Wall Street Journal. The same day, the Foundation capitulated in the face of a lawsuit demanding repayment of a $44,000,000 loan and filed for chapter 11 bankruptcy protection. In filing, the foundation stated that its assets were worth $80 million with liabilities of $551 million.
A close examination of the documents filed in the subsequent lawsuits reveals that more than $354 million passed through New Era's hands and that Bennett took $8 million of that for himself.
In the end, by liquidating all of Bennett's personal assets and reclaiming funds that had been paid to earlier participants, the court was able to bring the total loss down to $135,000,000, spread among all participants in the scheme. In other words, participants who got out early and suffered no losses were required to give the money back, to be shared with others who were less careful (or less lucky).
Bennett faced 82 federal counts of money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
and wire
Wire fraud
Mail and wire fraud is a federal crime in the United States. Together, 18 U.S.C. §§ 1341, 1343, and 1346 reach any fraudulent scheme or artifice to intentionally deprive another of property or honest services with a nexus to mail or wire communication....
, mail and bank fraud
Bank fraud
Bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. In many instances, bank fraud is a criminal offense...
. He planned to claim in his defense that he had been possessed by "religious fervor", but the judge did not allow this. In the end Bennett pleaded no contest
Nolo contendere
is a legal term that comes from the Latin for "I do not wish to contend." It is also referred to as a plea of no contest.In criminal trials, and in some common law jurisdictions, it is a plea where the defendant neither admits nor disputes a charge, serving as an alternative to a pleading of...
to all the charges in March 1997. Though federal sentencing guidelines indicated a sentence of 22 to 27 years, the judge gave him 12.
The scandal touched 1,100 individuals and charities, including more than 180 evangelical groups, colleges, and seminaries. A partial list appears below.
Reasons for collapse
All Ponzi schemes die sooner or later, as they are inherently unsustainable. Bennett's particular scam collapsed because of an investigation headed by Mary Beth Osborn, head of the Charitable Trust Section of the PennsylvaniaPennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
attorney general
Attorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...
's office. She had received a letter in 1993 from a suspicious whistleblower within New Era. Her inquiry eventually resulted in New Era's registry with the IRS.
As Bennett started to disclose greater financial details, New Era caught the wary eye of Albert Meyer, a Spring Arbor College accounting professor, whose institution in Michigan had been drawn into the matching scheme. Meyer's research indicated that the Foundation was a scam, but Spring Arbor College successfully collected on its early investment. College officials told Meyer that he was going to endanger their ability to get matching grants if he kept asking so many questions. They went so far as to wave a check from New Era in Meyer's face before investing more money. Meyer however was sure he was right and alerted federal investigators and The Wall Street Journal that New Era had all the features of a pyramid scam. After New Era collapsed, the president of Spring Arbor College called Meyer to apologize. "You were right all along. We should have listened to you," he admitted.
Partial list of investors
CharitiesAccording to the PA Attorney General's complaint, prominent victimized charities (listed without dollar amounts) included the Boy Scouts of America, the Environmental Defense Fund, Haverford College, Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
, Princeton University
Princeton University
Princeton University is a private research university located in Princeton, New Jersey, United States. The school is one of the eight universities of the Ivy League, and is one of the nine Colonial Colleges founded before the American Revolution....
, The Nature Conservancy
The Nature Conservancy
The Nature Conservancy is a US charitable environmental organization that works to preserve the plants, animals, and natural communities that represent the diversity of life on Earth by protecting the lands and waters they need to survive....
, One to One Partnership Inc., Planned Parenthood, the Philadelphia Orchestra, Stanford University Medical School, the United Way and Yale Law School. Some of the organizations with known involvement amounts included (in alphabetical order):
- Academy of Natural Sciences, Philadelphia, Pennsylvania, $2.7 million
- Biblical Theological Seminary, Hatfield, Pennsylvania, $5.8 million
- CB International, Wheaton, Illinois, $4.6 million
- Covenant College, Lookout Mountain, Georgia, $5 million
- Detroit Institute of Arts, Detroit, Michigan, $4 million
- Houghton CollegeHoughton CollegeHoughton College is a Christian liberal arts college affiliated with the Wesleyan Church. The college is a member of both the Christian College Consortium and the Council for Christian Colleges and Universities...
, Houghton, New York, $4 million - John Brown UniversityJohn Brown UniversityThe main campus in Northwest Arkansas has been the site of the university since it was founded in 1919. JBU has 2,183 students as of the 2011-2012 school year, 1,279 of which are traditional undergraduates. Of these, 878 live on campus. The Graduate School has 468 students...
, Siloam Springs, Arkansas, $4 million - International Missions, Reading, Pennsylvania., $5 million
- International Teams, Prospects Heights, Illinois., $5 million
- King CollegeKing CollegeKing College is a private, comprehensive college located in Bristol, Tennessee. Founded in 1867, King is independently governed with covenant affiliations to the Presbyterian Church and the Evangelical Presbyterian Church ....
, Bristol, Tennessee., $5 million - United World Mission, $1.45 million
- University of PennsylvaniaUniversity of PennsylvaniaThe University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
, $2.1 million - Wheaton CollegeWheaton College (Illinois)Wheaton College is a private, evangelical Protestant liberal arts college in Wheaton, Illinois, a suburb west of Chicago in the United States...
, Wheaton, Illinois, $4.6 million
Donors
- George F. Bennett Jr., Boston, $3.3 million
- Peter Ochs, ( address unknown ), $3.2 million
- Buford Television Inc., Dallas, $3 million
- Henry F. Harris, Wyndmoor, Pa., $3 million
- Westwood Endowment, Indianapolis, $2.8 million (less than $280,000)
- Don Soderquist, Rogers, Ark., $2.8 million
- William Kanaga, Orleans, Mass., $2.4 million
- Henry W. Longacre, Souderton, Pa., $2 million
- Whitehead Foundation, New York, $2 million (about $1 million)
- Amelior Foundation, Morristown, N.J., $1.9 million
Sources
- U. had millions in bankrupt charity's fund May 19, 1995
- Lessons From New Era, Oct 1, 1998
- Prudential Securities lawsuit announced
- United Methodist News Service March 31, 1997
- United Methodist News Service September 5, 1996
- Christianity Today, October 27, 1997
- Philadelphia Inquirer January 6, 1998
- Washington Post May 18, 1995